Is There a Stochastic Trend in European Union Emission Trading Scheme Prices?

Authors : Don BREDIN, Cal MUCKLEY

Pages : 0-0

Doi:10.17233/se.49225

View : 17 | Download : 10

Publication Date : 2010-09-01

Article Type : Research Paper

Abstract :The European Union’s Emission Trading Scheme insert ignore into journalissuearticles values(ETS); is the key policy instrument of the European Commissions Climate Change Program aimed at reducing greenhouse gas emissions to eight percent below 1990 levels by 2012. The key asset traded under the scheme is the European Union Allowance insert ignore into journalissuearticles values(EUA);. To further curtail greenhouse gas emissions the EU Allowance prices should follow a stationary path about a persistent upward trend. In this vein, this article finds evidence to the contrary indicating the presence of a stochastic trend insert ignore into journalissuearticles values(a unit root); in EU Allowance prices during the period from April 2005 through to July 2009. This finding is indicative of incoherence between the European Union ETS de jure policy, with regard to transiting to a low carbon economy, and EUA price behavior.
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